Obama calls for more leasing, end to industry tax deductions

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 16 -- US President Barack Obama called for more domestic leasing as a response to very high gasoline prices in his May 14 weekly radio address. He also renewed his call for Congress to repeal long-standing federal tax deductions for the oil industry.

“Last year, America’s oil production reached its highest level since 2003. But I believe that we should expand oil production in America, even as we increase safety and environmental standards,” Obama said.

He said he was directing the US Department of the Interior to conduct annual sales in the National Petroleum Reserve-Alaska “while respecting sensitive areas” and to accelerate evaluation of offshore oil and gas resources on the South and Mid-Atlantic US Outer Continental Shelf.

“We plan to lease new areas in the Gulf of Mexico as well, and work to create new incentives for industry to develop their unused leases on and offshore,” the president said.

He said the administration also would give companies time to meet new exploration and drilling standards by extending gulf leases that were affected by a 6-month deepwater drilling moratorium imposed following the Apr. 20, 2010, Macondo well blowout and oil spill, as well as certain areas off Alaska’s coast. “To streamline that permitting, I am establishing a new team to coordinate work on Alaska drilling permits,” he added.

Obama also urged Congress to appeal oil industry tax deductions, which he and other Democrats consider subsidies. “In the last few months, the biggest [US] oil companies made about $4 billion I profits each week,” Obama said, adding, “Yet they get $4 billion in taxpayer subsidies each year.”

‘End giveaways’
The president said, “This isn’t fair; it makes no sense. Before I was president, the [chief executives] of these companies even admitted that the tax subsidies make no sense. Well, next week, there is a vote in Congress to end these oil company giveaways once and for all, and I hope Democrats and Republicans come together and get this done”

Obama’s leasing announcement generally marked a return to a position he took shortly before the Macondo incident. It also followed the US House’s passage of three bills aimed at making the administration move more quickly to resume offshore leasing and issue drilling permit decisions.

“It’s ironic that while the White House and congressional Democrats strongly criticized these efforts, President Obama is now taking tiny baby steps in our direction,” responded Natural Resources Committee Chairman Doc Hastings (R-Wash.), who sponsored the bills. “The president is finally admitting what Republicans have known all along—that increasing the supply of American energy will help lower prices and create jobs.”

American Petroleum Institute Upstream Director Erik Milito noted that while Obama’s acknowledging the need to increase environmentally sound US oil production was a step forward, his repeated request for Congress to phase out oil industry tax deductions was still a mistake.

“Including increased taxes will lead to a drop in domestic production, domestic jobs, and domestic revenues,” Milito warned. “The oil and gas industry already supports 9.2 million American jobs and with a dedicated approach to domestic energy production, our industry can put more Americans to work and help decrease the deficit.”

JEC issues report
Obama’s latest call to remove oil industry tax deductions came a day after Congress’s Joint Economic Committee issued a report concluding that modifying or eliminating certain provisions benefiting the five major US integrated oil companies would reduce the federal deficit by $21 billion over 10 years and encourage investments in alternative energy and energy efficiency.

Proposed changes directed at the five US majors include eliminating their ability to claim the domestic manufacturing deduction against income derived from producing oil and gas, repealing the expensing of intangible drilling costs, repealing expensing of injectant costs as part of a tertiary recovery operation, and modifying the foreign tax credit’s dual capacity provisions.

“Critics of repealing these subsidies argue that the targeted tax breaks spur production and lower energy prices,” JEC’s May 13 report said. “In reality, most of the so-called incentives have no impact on near-term production decisions, and thus repealing them would have no effect on consumer energy prices in the immediate future. Even in the longer term, the current proposed changes to these tax provisions would have little impact on global production and a negligible effect on consumer energy prices.”

API immediately challenged the report’s conclusions. “This study was neither accurate nor insightful,” said Kyle Isakower, its vice-president of regulatory and economic policy. Annually raising taxes on the industry by billions of dollars would reduce investments in US oil and gas development, cost thousands of US jobs, and, over time, reduce energy production and the taxes and royalties it generates, he maintained.

“It would also increase imports,” Isakower said. “We wouldn’t reduce the deficit, and necessary government investments could be adversely affected. Those advocating tax increases, therefore, would be cutting off their nose to spite their face.”

Contact Nick Snow at nicks@pennwell.com.

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